G20 urges rapid action to avoid default

HEADING FOR DISASTER?Officials from around the globe have been issuing warnings that a failure to raise the US’ debt ceiling would wreak havoc on the global economy

Reuters, WASHINGTON

Finance officials from the world’s biggest economies on Friday pressed the US to head off a potentially devastating default and vowed to proceed carefully when the time comes to normalize monetary policy.

A communique issued at the end of a meeting of G20 finance ministers and central bankers said the US “needs to take urgent action to address short-term fiscal uncertainties.”

The US government has been partially shut since Tuesday last week amid a budget standoff between congressional Republicans and the White House. Republicans also have refused to raise the nation’s US$16.7 trillion debt ceiling.

Officials from around the globe have warned that failing to raise the debt cap would wreak havoc on the global economy.

Anton Siluanov, finance minister of this year’s G20 chair, Russia, said the mention in the group’s communique amounts to a “general wish for a fast solution.”

Republicans presented a plan on Thursday to provide a short-term increase in the US debt limit, spurring hopes a deal could soon be reached. On Friday, the White House and lawmakers were still struggling to work out the details.

“Our American colleagues are doing everything possible in order to find a mutual understanding or agreement with the Congress,” Siluanov told reporters.

Solving the impasse is crucial for a global economy that the G20, which accounts for 90 percent of world output and two-thirds of its population, said is showing signs of improvement, but still facing “downside risks.”

Maintaining growth momentum is likely to get even more challenging as central banks begin winding down the monetary stimulus launched during the 2007 to 2009 global financial crisis.

The prospect of the US Federal Reserve reining in its stimulus by year end spooked world markets earlier this year and plunged some developing countries into turmoil as the gusher of cheap dollars that had poured into their economies dried up.

Echoing the statement from a summit of G20 leaders in St Petersburg last month, the group of advanced and emerging nations pledged to ensure any monetary policy changes are “carefully calibrated and clearly communicated” and said navigating swings in capital flows would remain a challenge.

It said emerging economies remained important drivers of global growth, even though many have slowed sharply in recent years and are expected to brake further.

“A while ago there was an excess of exuberance and now perhaps an excess of pessimism,” Brazilian central bank Governor, Alexandre Tombini, said in a statement prepared for delivery to a meeting of finance officials yesterday.

“Brazil and many emerging economies in general are in a much stronger position than usually portrayed to withstand the current transition turbulence,” he said.

Most of the attention, however, was on the risk of a US default, which has clouded the global economic outlook.

Siluanov said US Secretary of the Treasury Jack Lew left the gathering early to participate in debt talks.

“We trust that the administration and the Congress will arrive at a mutually acceptable solution,” he said.

Lew has said the US would be unable to meet all its obligations if the debt limit is not lifted by Thursday.